Here are some trade themes where we see value, as of May 21, 2017 (with a 1+ week delay):

Value on the Curve: (active CA trades):

  1. *** Look to buy cheap flies in the valley of the fly curve. Favorable roll, stimulus prospects and possible Fed stopping balance sheet reinvestments should keep these supported. Also look at some fly structures centered in the greens.
  2. *** Look to establish long double fly positions at the back of the curve. The year double flies are back to the -2 level again.
  3. ** Buy cheap crisis protection. A combination of market short positioning, increased Trump headline risk, and general headline risk could cause a large rally.
  4. ** Look at calendar spread structures in the purples for roll. This is also great insurance against the 30 years from leading the puking, and walls aren’t cheap.
  5. ** EURIBOR: The reflation trade looks cheap there. Now that the French elections are over, a positive roll look at reflation seems attractive.
  6. NEW * Look for cheap ways to play for two hikes through Q3. Yellen’s clock is ticking.
  7. * Look for opportunities on the volatile 6mo fly curve. Some structures should move on a further rally but move less on a selloff.
  8. * The term structure of ED-FF looks too steep. If the markets want to grab for yield, the ED-FF spreads further out should be narrower relatively.
  9. * Buy ED 2018 meetings. Look at Q2+.

Value on the Horizon: (“C” trades):

  • * Look at cheap bearish tail trades. The curve is flat and the long end could really sell off. If the Fed pauses to stop reinvestments, this could steepen the longer end of the curve.  Spreads and flies could both benefit.  Look at timing plays.
  • * At what point does the Fed start letting the Portfolio unwind? The answer seems to be after a “few hikes”, and this is becoming closer.
  • * When does the Fed start going to a point target? This could occur before the end of 2018.
  • Look to sell some EU flies closer to 0. After tapering could come hikes from negative rates.

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